Tim Oren's Due Diligence

The Ambassadors of Cute

The Japanese Foreign Ministry has come up with a new wrinkle - three roving ambassadors for Japan's "kawaii" culture. Misako Aoki appears to hold the 'Lolita' portfolio; it's not clear what trends the others represent.


(Via Japan Newbie blog, which has a lot more. Official Foreign Ministry page, in Japanese here.)

While this may seem like more biggov silliness, it makes a sort of sense. Japanese cultural exports have become a big business, even as its leadership in electronics slips southward to Korea and China. The reach in the US is slowly breaking out of the typically adolescent otaku set; last week I spotted a copy of Shonen Jump in my orthopedist's waiting room.

Given Japan's affection for things robotic, I'm now eagerly awaiting the arrival of a giant autonomous mecha ambassador.

Dirty Little Secret, Part II

It's not just Silicon Valley. Highly trained immigrants to the US are packing up and heading back home taking their skills with them.

Meanwhile, "...average government workers are now making $30,000/year more than the average private sector worker...".

There is, of course, no possible correlation.

Zombies Identified

Because only zombie companies would put up with this. And like movie zombies, these - Bank of America, American International Group, Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial - will soon, if not already, be shambling around groaning for "braaaiiinnnsss!!1!1!" because the few left there will be gone. But at least now you know some of the companies you don't want to do business with, in spite of the administration's efforts to conceal the extent of damage under the TARP.

And here I was taught in school that 'progressives' were in favor of breaking up trusts and big companies. Now being 'too big to fail' is a ticket to becoming a taxpayer-subsidized arm of the government. Somewhere, the meaning of 'progressive' changed a bit. Just like movie zombies, the best thing to do with these is to blow them to bits, and give those a decent burial.

Update: Nearly half the top execs at the Zombie Seven have already left since June. Good luck with getting decent people to back fill. If it isn't clear from above, I regard the Original Sin as being the bailouts. That extra-legal deviation from standard bankruptcy proceedings not only diminished investor confidence in every sector touched, but is the direct cause and excuse for this abrogation of contracts. Obama's (and Bush's) shillings come dearly, and we'll be paying for them in taxes, inflation, and reduced trust in the market for years to come.

A Well-Deserved Nobel

No, not that one. It's the economics Nobel awarded to Oliver Williamson and Elinor Ostrom. I don't know Ostrom's work first hand, but Williamson's bridges between Coase's concept of transaction costs and an analysis of the various ways of organizing economics activity through markets, contracting and firms. The guys at Marginal Revolution have a more complete take on his work. For many years, Williamson's Economic Institutions of Capitalism has been my go-to reference to stimulate thinking about economic reorganizations precipitated by the net and other technology innovations. (Copyright 1985, so it's safely pre-net, forcing you to think it through yourself.) So I'm glad to see the good professor get his recognition, and I will hoist a drink in his honor this evening.

The Price of Government Cheese

It appears I'm not the only one boycotting Government Motors. GM sales are down 45% YOY in September, Chrysler's 42%. Meanwhile Ford, which did not take a bailout, is only down 5%, gaining market share at its rivals' expense.

It appears the type of folks who formerly bought GM and Chrysler products don't appreciate being forced to support them, and the Prius crowd aren't interested in changing their buying habits to rescue the UAW. Who knew? While it's a shame to watch even more taxpayer dollars go down the rat hole as the auto bailouts fail, it's probably worth the cost as an object lesson to those who want to substitute rent-seeking for actually serving customers well.

The Roving Eye: Mike Rowe is a Smart Guy, The Real AIG Scandal, Wired Still Funny, An Old Fart Moment

The fever's gone, so today is the day to stop the drugs and see what happens when the overlapping antihistamines, cough remedies and the like wash out of the system. So far a marginal headache and a few sniffles, but the brain cells are mostly firing again.

Also a dirty guy. Spend 20 minutes on this TED talk instead of another Discovery Channel rerun. It's well worth it.

Can you say moral hazard? Most of the AIG bailout money went right out again, to counter-parties to AIG's failed credit default swap trades. All made whole, and the bills passed on to the taxpayers and their future generations. Shouldn't these big banks be taught some lessons about counter-party risk? Instead the ones learning that lesson are the $1 / year guys. The country's in the very best of hands.

Another good source for bank information. This site pulls together TARP as well as conventional bank rating metrics.

Analysis No, Snark Yes.

The passing of the computer lab. One of those things that make you feel old. Who needs a computer lab when everyone already has one? I got into the racket when the 'computer lab' was a building, not a room; there was only one computer. The chokepoint was access to key punches, which is why I learned to fix the most common failures of IBM 026 and 029 punches: He who revived the machine got first use and didn't stand on line. Over time the prestige went from a big card deck, to a mag tape, and then just a listing, because you'd gotten 'interactive' privileges. Then you got to stand on line for a ASR 33 or 'glass TTY'. 'Home computing' meant you'd scored a gig that would give you an old terminal and an acoustic coupler so you could do more work. I like sitting here with a supercomputer on my lap a lot better, but occasionally the boggle factor kicks in.

Looking For a Few Good Banks

I'm looking for a new retail bank, for reasons described later, and perhaps a couple of others in which to park some short-medium term CD money. Given the current environment, it makes even more sense than usual to look into the financial stability, management and business practices of a candidate before sending them the cash. Particularly, I'd like to avoid those that have taken TARP bailout funds, and still have the old management whose practices may have made it necessary. Of course, the easiest way to avoid such is to just look for banks that haven't taken the bailout.

Whereupon it develops that while there's a Treasury maintained list of TARP banks (pdf) - which lags reality by a few weeks - there's no easily available list of those that have turned it down, or made a statement of that intent. It's almost as if the MSM doesn't want to tell that story. But a bit of digging around produced this compilation of non-TARP banks, from the Bailout Sleuth blog, which seems to have set up camp on the TARP issue. Advantage - blogosphere! If you think it's worth supporting that effort, send them some link love or put them into your reader.

I've done my retail banking with Wells Fargo for many years. Wells, of course, has taken $25 billion in TARP funds. Now, they can legitimately claim they didn't want the money, and that they and other solvent banks were pressured into the program by Bush's Treasury Secretary Paulson. (The legal basis for that force majeure, if any, would make interesting reading.) Indeed, they are complaining loudly today about just that.

But that's beside the point for someone looking for a good bank to stash some funds. Having taken Bush's shilling, the TARP banks now find themselves political footballs for Obama and the Democrats. From last week's NY Times (BugMeNot):

The list of demands keeps getting longer. Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens. As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.... One of the biggest concerns of the banks is that the program lets Congress and the administration pile on new conditions at any time.

This has everything to do with political expediency, but nothing at all to do with providing a safe return to depositors, or even less to banks' bond and share holders. These banks are no longer creatures of the market, but of an administration and Congress attempting to suspend reality. The NYT again:

“I honestly believe the people in power pushing this policy see it as a win-win — as something that is good for the banking industry and good for homeowners and others,” said Douglas J. Elliott, a former investment banker who is now an economics fellow at the Brookings Institution. “But there is a slippery slope and there are potentially significant negative consequences.... What gets us in real trouble is when we try to fudge things and pretend that something is in the direct interest of both the government and the financial institutions when it in fact costs the banks money or increases their risk levels.”

Wells and the other big TARP banks were once too big to be let fail. Now they're too big to be let free. Me, I'm looking at good regional and local banks, even credit unions. Small is beautiful.

Bad Money Still Drives Out Good

Gresham's Law hasn't been repealed, but it's taking on new forms in Washington these days.

Having put 'bad' money - printed by fiat or 'secured' by loans against taxpayers yet unborn - into the banking system in the first round of bailouts, the Feds now presume to rewrite not only future but existing loans. The consequences were on exhibit in Washington last week as financial genius Barney Frank and other politicians "...managed to demand more loans for consumers while simultaneously giving lenders new cause to wonder if they'll ever be repaid." They and other congress critters want to make it legal for bankruptcy judges to forcibly abrogate the terms of existing mortgages.

As pointed out in this WSJ article, most of the lending side of the credit market does not come from banks: "Most investors who lend in these markets are not recipients of financial bailout money, so Congress can't simply browbeat them into making another big bet on the American consumer. " These lenders have 'good' money that is still subject to the reality check of the market, rather than political exigency. But a move to retroactively rewrite credit contracts by government fiat will affect them as well. The result?

First, to make the world of collateralized mortgage debt tremble once again. While the consequences of foreclosures fall on the junior tranches of packaged debt - now mostly written off - in many case the results of forcible, retroactive modification of a contract's conditions would fall pro rata across all tranches, causing the value of those that are still standing to slide as well. Yet more fear to hang over new as well as existing mortgage backed securities.

Second, and not too surprisingly, the 'good money' investors want no part of this game.

The “real money” investors didn’t want to invest alongside the government. Their concern is that if things go south, the government will take 100% of the value left in the bank or whatever and leave private investors, including recent ones, with nothing. This is precisely what happened to recent investors in Fannie Mae.

See here for further pithy quotes from a recent financiers' conference, where the attendees were brutal to government officials wishing the good old days would come back.

Not if the government has much to do with it, at least in housing. Consider the calculation a 'good money' lender must now make to decide on a hurdle rate for putting funds into originating US mortgage loans, or buying securitized mortgages:

• Take the lender's costs of funds and add a desired base rate of return given the asset class. This is the basic calculation that is always done.


• Multiply in a factor representing risk to principal from defaults and foreclosures, with consideration of the current economic and housing market dynamics.


• Multiply in a further factor to represent inflation and/or exchange risk over the life of the loan. Consider the possible inflationary effects of the TARP, stimulus package and possible follow-ons to the US dollar.


• To our shame, now multiply in a further factor for political risk, an consideration heretofore limited to dodgy 3rd world countries known to abrogate contracts and treaties at whim.

By the time you get done, a rational lender might well be demanding a rate usually associated with scary early stage venture debt. Meanwhile, the Feds are trying to drive effective rates into the low single digits.

There's no way to resolve the rates on offer from the 'bad money' with those needed by rational, market driven 'good money' investors. The result is the good money will stay home. Home, in this case, mostly being China or the Middle East. The fraction of federally originated loans, already at 35 percent, is going to keep on rising, and it will done with more fiat money cranked out by the Feds.

The politicians are trying to reinflate the housing market. Their irresponsible behavior is instead likely to leave that market deflated by driving out the good money, while debasing the currency and piling up debt for the productive and future generations.

The Roving Eye: The Looter Stimulus, Hyenas, 4G Cronyism, Mr. Softie

Can anyone seriously believe this will fix the economy? Well, it will benefit the ruling class, er, politicians and government workers. And their corrupt fellow travelers. The economy - well not so much. Come on, this doesn't even pass the grin test. Propping up state budgets that just need to be cut. Picking favorites and winners in technology. Funding yet another laundry list of pork barrel projects. Gutting welfare reform and encouraging dependence. And kicking the can on the costs by passing the debt and inflation on to the young and productive. How can anyone seriously believe that this farrago of statism is going to inspire confidence and return reality to the economy? Maybe they don't. It is a certainty that it will increase the numbers of tax eaters and those beholden to the state - not the market - for their livelihood. And maybe that's the point. Meanwhile, in the real world, we're heading right down the statist stagnation path after Japan. Rope.

No, not politicians. This time. We're talking a blog by hyena researchers in Kenya. I learned about this one at an alumni dinner. Some interesting stories of the collision of wildlife, conservationist, and local interests. And you wouldn't think of putting hyenas on your 'cute' list, but some of them are.

Always with the consumer in mind. That's what the DTV delay is all about, right, a little more time to distribute those converter boxes? Well, maybe not. Ars Technica lays out the pattern of influence peddling behind the delay, seeking to weaken competition to AT&T's 4G offerings.

Coming to a mall near you. Microsoft says they'll open storefronts to compete with Apple's. It's hard to see how the economics are going to work. Apple's stores move volumes of relatively high priced hardware and well as software and accessories. Microsoft's high ticket items are in enterprise software, which doesn't quite fit the retail channel. There's always XBox, and I'm sure the existing channel will appreciate the competition. Or they can try to pick winners in the laptop market and compete with Best Buys. Yes, this should be amusing to watch. Meanwhile, here's a preview of MSFT's attempts to copy Apple.

The Roving Eye (and Foot): No Technology Edition

Happy Music. One of our excursions during the break was a couple of days at the California Worldfest music festival at the Grass Valley fairgrounds. We went up to see one of our favorite bands, the pioneering UK-African fusion group Baka Beyond. We greatly enjoyed their two sets, which concentrated on their more danceable numbers. We also try to pick up on at least one new artist each time we go to such an event. This time it was the Masanga Marimba Ensemble. This is an LA-based group headed by a CSU-Northridge world music prof and staffed largely with ex-students, playing Zimbabwean marimbas with a mix of traditional tunes and unique covers. A set of videos of a club gig can be found here. You can't listen to this music and stay in a crabby mood. Also shout-outs to Haitian artist Emeline Michel and the Bay Area based Euro-goulash Fishtank Ensemble. Also happy music.

In praise of the 5th Amendment. Don't talk to the police. This links to a tremendously effective lecture by law professor James Duane. It's well worth it for the substance, but it's also a good exhibition of the use of the medium to inform and amuse at the same time. (Hat tip: Maggie's Farm.) There's a follow-up piece from a police investigator as well.

What have capitalists learned? While Fukuyama got it glaringly wrong that the collapse of socialism would lead to the end of civilization level conflicts, you'd think there ought to be some takeaway lessons from that, and the rise of the global economy. Guy Sorman has a useful summary of what economists have learned that should be a basic grounding for economic and policy discourse going forward. I'd have made the final point stronger, but that's a quibble. RTWT.

Making light of the anointed one. There have been a lot of cracks about the 'Obamessiah' in the rightosphere, but it takes the Brits to really do the job right. Gerard Baker of the London Times comes up with a tone-perfect parody. I'm not sure which came first, but there's also a YouTube of Baker reading his piece - equally droll. More substantively, the Iraqis apparently just waited until he was out of town before back-channeling their lack of faith to their friends in the media.

Got any old Pokemon toys around the house? Here are some seriously strange things to do with them. It's art, not technology, 'kay?